Q4 2016 - Market Summary

2016 was a good year for investors. Election years can be hit or miss; 2016 was a hit.

Our equity funds returned between 5.00% (large growth) and 28.26% (small value). The fund returning 5% had been an out-performer for several years and, due to a change in supply and demand for different baskets of securities with different characteristics, it lagged while others flew.

Small value has the potential to pay us the most over time but can lag for years and then give us a lot very quickly as happened last year.

Emerging markets was winning much of the year but then gave some back after the election as the dollar strengthened. At one point we were up over 20% in Emerging Markets and finished with a gain of 12.35%. International developed markets stocks gave us between 5.34% and 8.00%. This is diversification at work, all positive in 2016 but markedly different returns between the various asset classes.

Results from the presidential election have brought the potential for positive economic change and with that increased demand for smaller company stocks as they stand to benefit more in relative terms. It’s been a tough economic environment in the U.S. with anemic growth, never shaking off the chill from the financial crisis. A more pro-business administration, along with some stimulus spending, has the chance of pushing our economy back toward more normal growth rates (3%).

There are signs of interest by some European citizens in reducing bureaucracy and reconstituting power to national governments. The recently departed Italian PM put forth a referendum in December trying to alter the Italian constitution in order to make the government more nimble (Italy’s economy, Europe’s 3rd largest, hasn’t really grown for 15 years.). The referendum failed but maybe the murmur can slowly increase toward a roar for change as a more rapidly growing European economy would be wonderful for the global economy.

Our bond funds returned between, -0.31% (intermediate municipal) and 26.43% (high yield) in 2016. The last few months have been tough for core bond holdings as the potential for greater economic growth, and higher interest rates, caused decreased demand for some bonds. Our most commonly used bond fund returned 2.57% in 2016 while municipal bonds were hit after the election with the prospect of the value of the tax-free interest they pay potentially was diminished by lower income tax rates.

It’s nice to have a good year. We still face some global economic headwinds but there’s also now greater potential for better growth. It would be nice to have a sustained period, at least in the U.S., of more normal market returns coupled with more normal economic growth relative to historical averages.

As always, I truly appreciate the confidence you’ve place in us with your assets and I want you to feel free to call at any time regarding your portfolio or any personal financial matter.

Sincerely,

Erik S. Wolfers, MBA, CFP®